Pre-construction condos provide an excellent opportunity to enter the real estate market with significant benefits to you as both a homebuyer or investor. However, new legislation has impacted this market, and to best protect your life-changing investment, speaking to a lawyer might be the most crucial part of your journey.
What are the reasons to invest in a Pre-Construction Condo?
There are many reasons to invest, with the most popular being that there are no bidding wars, lower price tags, and the Tarion warranty. Since the units have not been built yet, the price stipulated on the Agreement of Purchase and Sale, is the price of the unit – there is no need to worry about a last minute offer by another investor or interested buyer.
Another benefit of a pre-construction is that there is a lower and more flexible payment schedule. While a regular purchase requires a significant down-payment in addition to the procurement of a mortgage, a pre-construction often requires small, staggered deposits that allow buyers more time to sort out their financial situation. Lastly, the 10-day cooling off period is a protection afforded exclusively to purchasers of pre-constructions condos and allows you some time to review documentation with a lawyer, speak to mortgage brokers, and otherwise make sure that this investment is the right move for you.
Reasons to be cautious when investing in a Pre-Construction Condo.
There are two significant factors to consider when purchasing a pre-construction: first, that the building process may face significant delays preventing you from obtaining occupancy or being cancelled altogether, and second, that the unit may not live up to your expectations. Vendors may run into financial difficulty, which while not a common occurrence, can certainly happen. As a result, researching platinum brokers who are associated with topflight vendors provide additional assurance to buyers that their condominium will be built as expected.
Secondly, the vendor retains almost exclusive creative freedom in the design and layout of the unit. While during your initial discussions and through renderings you may feel that the unit is exactly what you are looking for, be prepared for alterations or adjustments.
So, I found the Pre-Construction Condo for me, what should I know about the purchase process?
After finding the condominium you wish to purchase, you are presented with an agreement of purchase and sale by the vendor. In addition to this document, vendors will provide you with statutorily required disclosures and information packages that detail the purchase process and the rights and obligations of each party.
What laws oversee the purchase of a Pre-Construction Condo?
Two important pieces of legislation related to the purchase of a pre-construction condo are the Condominium Act and the Condominium Home Addendum. The Act regulates the creation, purchasing, living in, and governing of condominiums in Ontario. This province wide law is put in place to protect homebuyers and establish a general set of rules to govern the practice of purchasing and selling condos. Additionally, the Condominium Home Addendum sets out the obligations of vendors, builders and purchasers related to the closing and any potential delays in the home being ready for occupancy.
When speaking to a real estate lawyer, they will bring forward key parts of the Act that may be particularly relevant to your unit and will be able to better explain how the Act will impact your ownership of a condominium unit in practice.
What is an Agreement of Purchase and Sale?
This document provides you with important information regarding your unit and states the agreed upon purchase price for the unit. As a legally binding contract, it is within your best interest to have a lawyer review this document. A lawyer can raise your attention to any abnormalities, or clauses that should be reviewed before signing on.
Additionally, the agreement of purchase and sale will contain a number of documents that a lawyer can further explain to you and ensure that your best interests are maintained; this includes the HRCA Information for Buyers of Pre-Construction Condominiums about the possible termination of the Purchase Agreement, the Tarion Addendum, Statement of Critical Dates, Disclosure Statements, Ontario’s Residential Condominium Buyer’s Guide, and the Tarion Warranty Information Sheet for New Condominium Units.
What is the HRCA Information Sheet?
As of January 2020, The Home Construction Regulatory Authority Information Sheet is required to be attached to your purchase and sale agreement and signed by both parties. During your discussion with your lawyer regarding the purchase agreement, they will also review the HRCA sheet with you to disclose the inherent risks and the options of recourse available to buyers of a pre-construction unit.
What is the Tarion Addendum?
The Tarion Addendum provides prospective homebuyers with advice and cautions about their rights and obligations under the New Home Warranties and Protection Plan, contains the statement of critical dates and tempers a vendor’s usage of Early Termination Conditions in the purchase agreement. Furthermore, the Tarion Addendum provides information about how to handle delays alongside documents that summarize the expected closing costs and potential adjustments.
What is the Statement of Critical Dates?
This document outlines the 5 important occupancy dates:
- First Tentative Occupancy Date
- Subsequent Tentative Occupancy Date
- Final Tentative Occupancy Date
- Firm Occupancy Date
- Outside Occupancy Date
This schedule also provides buyers with information on how to deal with vendor delays and early termination conditions.
What is the Disclosure Statement?
Per s. 72 of the Condominium Act, this statement is legally required to be attached to the purchase agreement given to buyers by the vendors – a purchase agreement is invalid without both parties signing this statement.
The Disclosure Statement provides buyers with copies of declarations, by-laws, and rules for their condominium corporation, a summary of agreements entered into by the vendor, and a copy of the budget statement for the first year since the condo was registered. A lawyer can assist in making these documents intelligible to you by highlighting key features of the condo and its corporate structure to prospective buyers.
What is the Ontario Residential Condo Buyer’s Guide?
Similarly required under s. 72 of the Condominium Act, this document provides information regarding condo ownership and the condo purchase process. It is comprised of 30 pages broken down into 4 main sections: the purchase process, moving into a pre-construction condo unit, condominium living, and resources for resolving issues during condo living.
What is the Tarion Warranty Information Sheet for New Condo Units?
The last piece of information required to be attached to the purchase agreement is the Tarion warranty Information Sheet. The Tarion warranty provides buyers with Pre-Delivery inspection, Deposit Protection (through the Condominium Act), Delayed Occupancy Coverage, Warranty coverage with diminishing coverage over 7 years, and much more.
So, are Pre-Constructions worth the wait?
Pre-constructions provide you with the unique opportunity of being a part of the GTA’s continuously developing landscape in Canada’s preeminent real estate market. To ensure this is the right investment for you, identify a comfortable budget to operate in, speak with trusted agents and mortgage brokers, and consult a lawyer before signing your purchase agreement and during your 10-day cooling off period to best protect your interests.